The AAT has held that a taxpayer was entitled to an R&D tax offset of $363,281 in relation to activities associated with the development of desalination units.

The Commissioner argued that the taxpayer had not “incurred” the relevant expenditure in view of the way the R&D activities were structured – which essentially involved the setting up of a several separate entities that would obtain the relevant investment funds, carrying out the relevant activities and act as project manager for the activities. The project manager entity would then invoice the taxpayer under a service agreement for the R&D activities done on its behalf.

In particular, the Commissioner argued that the expenditure had not been incurred by the taxpayer, as payment of money owed by the taxpayer to the project manager entity was “contingent” on the occurrence of future events and that as a result, the taxpayer was not “definitively committed” to the expenditure. However, while the AAT acknowledged that the timing of the payments by the taxpayer to the project manager entity was “conditional” on the taxpayer receiving funds from investors etc, it nevertheless found this did not mean the taxpayer was not definitively committed to the make the required payments. In this regard, the AAT noted among other things, that the taxpayer’s directors’ records acknowledged its obligation to meet the invoiced amounts and referred to them as “payment due” and that the lack of a fixed date for payment of a liability will not prevent a liability from having been incurred.

(AAT Case [2013] AATA 846, Re Desalination Technology Pty Ltd and FCT, AAT, Ref No 2012/4583, Frost DP, 29 November 2013.)

[LTN 236, 5/12/13]

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